VAN KAMPEN AMERICAN CAPITAL
SMALL CAPITALIZATION FUND
Annual Report
October 31, 1996
Management Discussion
The objective of the Van Kampen American Capital Small Capitalization Fund
is to achieve long-term capital appreciation by investing in a portfolio of
equity securities with a market capitalization of between $125 million and
$1 billion. During the fiscal year ended October 31, 1996, the Fund's
performance was helped by a strong stock market, in general, and the strong
performance of small cap energy stocks, consumer distribution, and finance
companies, in particular.
Stocks are selected for the Fund based on their attractiveness in terms of
recent earnings estimate revisions and relative valuations measures, such
as price/sales ratio. Purchasing small cap stocks with recent earnings
estimate revisions has helped the Fund outperform the Wilshire Next 1750
Index, a small cap index. Purchasing stocks based on relative valuation
measures alone has not helped the Fund this year. However, the subset of
stocks with recent earnings estimate revisions and attractive relative
valuation measures has outperformed all stocks with recent earnings
estimate revisions.
For the 12 months ended October 31, 1996, the Fund achieved a total return at
net asset value of 18.50 percent, including reinvestment of dividends totaling
$0.5275 per share. By comparison, the Standard & Poor's 500-Stock Index
achieved a total return of 24.02 percent and the Wilshire Asset Management
Next 1750 Index achieved a total return of 17.35 percent.*
[GRAPH]
Change in Value of a $10,000 Investment
Van Kampen American Capital Small Capitalization Fund vs. Wilshire Asset
Managment Next 1750 Index* and the Standard & Poor's 500-Stock Index*
(November 1993 through October 1996)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Standard & Poor's Wilshire Asset Management Van Kampen American Capital
500-Stock Index* Next 1750 Index* Small Capitalization Fund
----------------- ------------------------- ---------------------------
Nov 1993 10,000 10,000 10,000
Dec 1993 10,168 10,363 10,129
June 1994 9,827 9,636 9,124
Dec 1994 10,306 10,187 9,413
June 1995 12,382 11,751 11,161
Dec 1995 14,165 13,270 12,726
June 1996 15,592 14,634 13,806
Oct 1996 16,491 14,565 14,488
</TABLE>
Past performance is not indicative of future performance.
*The Standard & Poor's 500-Stock Index is a broad-based, unmanaged index
that reflects general stock market performance. The Wilshire Asset
Management Next 1750 Index is an unmanaged, monthly index that reflects
the general performance of small-capitalization stocks. Keep in mind
that neither indices reflect any commissions or fees that would be paid
by an investor purchasing the securities they represent.
<TABLE>
<CAPTION>
Since Inception
1 Year (11/23/93)
<S> <C> <C>
Average Annual Total Return 18.50% 13.60%
</TABLE>
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Common Stocks
Consumer Distribution 6.3%
Carson Pirie Scott & Co. (b) 23,000 $ 575,000
Claire's Stores, Inc. 56,250 956,250
CompUSA, Inc. (b) 7,000 324,625
Consolidated Stores Corp. (b) 29,000 1,112,875
DIMON, Inc. 5,000 93,125
Dollar Tree Stores, Inc. (b) 5,000 190,000
Eckerd Corp. (b) 19,600 546,350
Fingerhut Companies, Inc. 39,000 570,375
Herman Miller, Inc. 4,000 173,500
Hollywood Entertainment Corp. (b) 10,000 206,250
HON Industries, Inc. 19,000 665,000
Just For Feet, Inc. (b) 6,000 157,500
Lear Seating Corp. (b) 5,000 185,625
Meyer (Fred), Inc. (b) 3,000 104,250
Neiman Marcus Group, Inc. (b) 4,000 131,000
Pier 1 Imports, Inc. 38,900 549,463
Proffitts, Inc. (b) 2,940 119,254
Revco D.S., Inc. (b) 4,000 120,500
Rexel, Inc. (b) 6,000 86,250
Rite Aid Corp. 10,000 337,500
Ross Stores, Inc. 23,000 966,000
Tech Data Corp. (b) 13,000 333,125
Tiffany & Co. 16,000 590,000
TJX Companies, Inc. 17,000 673,625
U. S. Office Products Co. (b) 5,000 145,000
Vons Companies, Inc. (b) 14,000 775,250
Waban, Inc. (b) 37,000 966,625
Zale Corp. (b) 28,000 535,500
----------
12,189,817
----------
Consumer Durables 3.1%
Borg Warner Automotive, Inc. 8,000 305,000
Breed Technologies, Inc. 19,500 448,500
Brunswick Corp. 39,000 916,500
Callaway Golf Co. 11,000 339,625
Champion Enterprises, Inc. (b) 21,000 417,375
Department 56, Inc. (b) 1,500 32,625
Echlin, Inc. 7,000 228,375
Ethan Allen Interiors, Inc. 19,000 676,875
Galoob Toys, Inc. (b) 5,000 131,250
Harman International Industries, Inc. 2,400 123,000
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Consumer Durables (Continued)
Mohawk Industries, Inc. (b) 17,000 $ 403,750
Smith (A. O.) Corp. 7,000 184,625
Snap-On Tools, Inc. 21,000 677,250
Stanley Works 10,000 283,750
Sturm, Ruger & Company, Inc. 8,000 150,000
Toro Co. 22,000 682,000
----------
6,000,500
----------
Consumer Non-Durables 10.4%
Alberto Culver Co., Class B 14,100 638,025
American Greetings Corp., Class A 15,000 438,750
Amway Asia Pacific Ltd. 5,000 177,500
Barefoot, Inc. 54,000 546,750
Brown Group, Inc. 17,500 358,750
Burlington Industries, Inc. (b) 20,000 225,000
Donnkenny, Inc. (b) 25,000 312,500
First Brands Corp. 10,000 285,000
Fruit of the Loom, Inc. (b) 25,000 887,500
Herbalife International, Inc. 25,000 496,875
Hillenbrand Industries, Inc. 10,400 388,700
Hormel (G. A.) & Co. 16,000 380,000
IBP, Inc. 26,000 650,000
International Imaging Materials, Inc. (b) 20,000 472,500
Jones Apparel Group, Inc. (b) 44,000 1,331,000
Jostens, Inc. 10,000 212,500
Kellwood Co. 14,000 248,500
Lancaster Colony Corp. 17,000 654,500
Liz Claiborne, Inc. 36,000 1,503,000
Morningstar Group, Inc. (b) 30,000 498,750
Nautica Enterprises, Inc. (b) 42,000 1,291,500
Nu-Kote Holding Inc., Class A (b) 5,000 47,813
Oakley, Inc. (b) 62,000 914,500
Paragon Trade Brands, Inc. (b) 27,000 712,125
Revlon Inc., Class A (b) 10,600 367,025
Russell Corp. 44,800 1,276,800
St. John Knits, Inc. 16,000 746,000
Starbucks Corp. (b) 25,000 821,875
Tambrands, Inc. 7,000 299,250
Timberland Co. (b) 6,000 201,000
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Consumer Non-Durables (Continued)
Unifi, Inc. 19,000 $ 586,625
Warnaco Group, Inc. 25,000 615,625
Westpoint Stevens, Inc. (b) 45,000 1,192,500
Wolverine World Wide, Inc. 20,200 499,950
----------
20,278,688
----------
Consumer Services 5.7%
Anchor Gaming (b) 2,000 99,500
APAC Teleservices, Inc. (b) 3,000 138,000
Applebee's International, Inc. 4,000 99,000
Banta Corp. 15,000 315,000
Boston Chicken, Inc. (b) 27,000 988,875
Bowne & Co., Inc. 20,000 455,000
Corrections Corp. of America (b) 3,000 76,500
Equifax, Inc. 13,000 390,000
Gartner Group, Inc. (b) 16,000 496,000
Kelly Services, Inc. 30,000 810,000
King World Productions, Inc. (b) 20,000 705,000
Media General, Inc., Class A 5,300 156,350
MGM Grand, Inc. (b) 10,000 390,000
Mirage Resorts, Inc. (b) 8,000 177,000
National Education Corp. (b) 17,000 276,250
New York Times Co., Class A 19,000 684,000
Omnicom Group 16,700 818,300
Papa John's International, Inc. (b) 11,500 575,000
PHH Corp. 16,400 483,800
Promus Hotel Corp. (b) 7,200 232,200
Regal Cinemas, Inc. 36,750 950,906
Robert Half International, Inc. 18,000 731,250
Sbarro, Inc. 26,000 685,750
Sitel Corp. (b) 4,200 79,800
Sonic Corp. (b) 6,000 132,000
Station Casinos, Inc. (b) 5,000 55,625
Valassis Communications, Inc. (b) 7,000 124,250
----------
11,125,356
----------
Energy 9.3%
Ashland, Inc. 7,000 294,875
BJ Services Co. (b) 1,400 62,650
Brooklyn United Gas Co. 20,000 585,000
Canadian Occidental Petroleum 18,000 319,500
Chesapeake Energy Corp. (b) 3,000 177,000
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Energy (Continued)
Columbia Gas Systems, Inc. 8,000 $ 485,000
Eastern Enterprises 24,100 918,812
El Paso Natural Gas Co. 20,200 967,075
Energy Ventures, Inc. (b) 7,000 309,750
Global Marine, Inc. (b) 67,000 1,256,250
Marine Drilling Co., Inc. (b) 40,000 550,000
MCN Corp. 30,000 832,500
Mitchell Energy & Development, Class B 5,000 103,750
NACCO Industries, Inc., Class A 16,800 766,500
National Fuel Gas Co. 2,500 92,186
Newfield Exploration Co. (b) 12,000 562,500
NICOR, Inc. 5,000 173,750
ONEOK, Inc. 24,400 652,700
Oryx Energy Co. (b) 28,000 553,000
Pacific Enterprises 30,000 918,750
Parker & Parsley Petroleum Co. (b) 10,000 295,000
Pennzoil Co. 7,000 358,750
Questar Corp. 10,000 365,000
Reading & Bates Corp. (b) 40,000 1,185,000
Seagull Energy Corp. (b) 17,688 384,714
Smith International, Inc. (b) 30,000 1,143,750
Tesoro Petroleum Corp. (b) 11,000 162,250
Tosco Corp. 11,500 648,313
Union Texas Petroleum Holdings, Inc. 34,300 737,450
Valero Energy Corp. 11,000 262,625
Varco International, Inc. (b) 11,200 219,800
Washington Gas & Light Co. 21,000 462,000
WICOR, Inc. 19,400 691,125
Williams Cos. 10,188 536,144
----------
18,033,469
----------
Finance 14.6%
20th Century Industries (b) 24,000 384,000
Aames Financial Corp. 6,000 267,000
Alex. Brown, Inc. 4,000 229,000
Alliance Capital Management, LP 5,000 138,750
AMBAC, Inc. 20,000 1,257,500
American Financial Group, Inc. 14,000 500,500
American Re Corp. 20,000 1,290,000
Bankers Life Holding Corp. 39,000 955,500
California Federal Bancorp, Inc. (b) 18,000 418,500
Charter One Financial, Inc. 11,550 503,869
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Finance (Continued)
City National Corp. 48,000 $ 846,000
CMAC Investment Corp. 15,000 1,038,750
Commercial Federal Corp. 18,000 753,750
Countrywide Credit Industries, Inc. 7,500 212,812
Donaldson Lufkin & Jenrette, Inc. 16,000 512,000
Edwards (A. G.), Inc. 26,000 776,750
Finova Group, Inc. 2,000 122,750
First American Corp. 7,000 348,250
First American Financial Corp. 6,900 263,925
Fremont General Corp. 30,450 898,275
GreenPoint Financial Corp. 11,800 548,700
Lehman Brothers Holdings, Inc. 25,000 621,875
Mercury Financial Co. 46,500 540,562
Mercury General Corp. 5,000 245,000
MGIC Investment Corp. of Wisconsin 12,300 850,237
NationsBank Corp. 8,000 757,000
North American Mortgage Co. 6,000 123,000
North Fork Bancorporation 23,500 743,188
Northern Trust Corp. 12,000 831,000
Olympic Financial, LTD (b) 7,000 111,125
Orion Capital Corp. 9,100 490,263
Paine Webber Group, Inc. 30,000 716,250
Penncorp Financial Group, Inc. 10,000 347,500
Peoples Heritage Financial 3,182 73,584
PMI Group, Inc. (b) 2,000 114,500
Protective Life Corp. 20,000 695,000
Reliance Group Holding 25,600 211,200
Republic New York Corp. 10,000 762,500
Roosevelt Financial Group, Inc. 23,000 398,188
Southtrust Corp. 20,500 679,063
Sovereign Bancorp, Inc. 63,650 751,866
Star Banc Corp. 13,300 1,190,350
Summit Bancorp 5,000 205,625
TCF Financial Corp. 22,000 852,500
Transatlantic Holdings, Inc. 13,000 937,625
Union Planters Corp. 28,000 976,500
Vesta Insurance Group, Inc. 22,500 579,375
Washington Federal, Inc. 7,000 167,125
Washington Mutual, Inc. 28,000 1,204,000
----------
28,442,582
----------
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Health Care 8.9%
Advanced Technology Labs, Inc. (b) 20,000 $ 601,250
ALZA Corp. (b) 20,000 522,500
American HomePatient, Inc. (b) 5,000 114,375
Ballard Medical Products 9,000 158,625
Bausch & Lomb, Inc. 24,000 807,000
Beckman Industries, Inc. 14,000 518,000
Bio Rad Labs, Inc., Class A (b) 9,000 222,750
Bio-Technology General Corp. (b) 20,000 163,437
Biomet, Inc. (b) 25,000 404,687
ClinTrials Research, Inc. (b) 10,000 371,250
CNS, Inc. (b) 12,100 201,162
Coherent, Inc. (b) 7,000 263,375
Dura Pharmaceuticals, Inc. (b) 6,000 205,500
Guidant Corp. 3,000 137,625
Haemonetics Corp. (b) 22,000 387,750
HBO & Co. 12,000 708,000
Health Management Associates, Inc., Class A (b) 34,500 724,500
Healthcare Compare Corp. (b) 7,000 306,250
Healthcare & Retirement Corp. (b) 15,000 373,125
Healthsouth Rehabilitation (b) 23,400 877,500
Horizon/CMS Healthcare Corp. (b) 9,000 93,375
ICN Pharmaceuticals, Inc. 37,535 713,165
Lincare Holdings, Inc. (b) 29,000 1,094,750
Manor Care, Inc. 8,000 312,000
Medpartners/Mullikin, Inc. (b) 32,722 711,703
MiniMed, Inc. (b) 7,200 185,400
Nellcor Puritan Bennett, Inc. (b) 17,000 331,500
Omnicare, Inc. 20,000 540,000
Ornda Healthcorp (b) 20,000 540,000
Pacificare Health Systems, Inc., Class B (b) 7,000 479,500
Quintiles Transnational Corp. (b) 13,000 867,750
Quorum Health Group, Inc. (b) 11,000 294,938
Renal Treatment Centers, Inc. (b) 19,800 522,225
RoTech Medical Corp. (b) 4,800 75,600
Steris Corp. (b) 8,000 307,000
Sybron International Corp. (b) 24,000 699,000
TheraTx, Inc. (b) 14,000 140,000
U S Surgical Corp. 3,000 124,875
Universal Health Services, Inc., Class B (b) 24,000 597,000
Vencor, Inc. (b) 9,000 261,000
Watsons Pharmaceuticals, Inc. (b) 10,320 347,010
----------
17,306,452
----------
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Producer Manufacturing 8.0%
ACX Technologies, Inc. (b) 16,000 $ 282,000
American Power Conversion Corp. (b) 7,000 144,375
American Standard Cos., Inc. (b) 7,300 273,750
Ametek, Inc. 5,000 101,250
Aptar Group, Inc. 9,600 306,000
Blount International, Inc., Class A 3,500 125,563
Briggs & Stratton Corp. 16,000 644,000
Camco International, Inc. 7,000 279,125
Cummins Engine Co., Inc. 12,000 499,500
Danaher Corp. 26,000 1,059,500
Detroit Diesel Corp. (b) 6,700 123,950
Duriron Co., Inc. 2,500 67,500
Global Industrial Technologies, Inc. (b) 53,400 967,875
Global Industries, Ltd. (b) 26,000 468,000
Granite Construction, Inc. 10,500 204,750
Harnischfeger Industries, Inc. 6,000 240,750
IDEX Corp. 13,500 504,562
Intermet Corp. 10,000 116,250
Johnson Controls, Inc. 4,000 289,000
Kaydon Corp. 5,000 203,125
Litton Industries, Inc. 15,400 696,850
MEMC Electronic Materials, Inc. (b) 10,000 192,500
Mueller Industries, Inc. (b) 11,500 462,875
National Service Industries, Inc. 6,000 207,000
Navistar International Corp. (b) 14,000 131,250
Oregon Metallurgical Corp. 10,000 307,500
PACCAR, Inc. 19,000 1,054,500
Ruddick Corp. 10,000 131,250
Southdown, Inc. 32,000 872,000
Tecumseh Products Co., Class A 10,000 562,500
Thermo Instrument Systems, Inc. (b) 30,375 918,844
Timken Co. 16,000 716,000
Trinity Industries, Inc. 8,000 278,000
United Waste Systems, Inc. (b) 32,000 1,104,000
Wolverine Tube, Inc. (b) 23,000 911,375
----------
15,447,269
----------
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Raw Materials/Processing Industries 5.8%
A K Steel Holding Corp. 12,000 $ 423,000
Allegheny Teledyne, Inc. 36,175 768,719
Cleveland Cliffs, Inc. 12,000 492,000
Cytec Industries, Inc. (b) 30,000 1,080,000
First Mississippi Corp. 16,000 460,000
Glatfelter (P. H.) Co. 39,500 745,562
Goodrich (B. F.) Co. 10,000 423,750
Handy & Harman 46,000 874,000
Homestake Mining Co. 5,000 71,250
IP Timberlands 32,000 416,000
J&L Specialty Steel, Inc. 15,100 175,537
Longview Fibre Co. 25,000 412,500
Lyondell Petrochemical Co. 16,000 342,000
Medusa Corp. 3,500 116,812
Owens-Illinois, Inc. (b) 47,000 740,250
Pegasus Gold, Inc. (b) 55,000 556,875
Potlatch Corp. 7,000 297,500
Rayonier, Inc. 11,000 437,250
Safeskin Corp. (b) 7,000 277,375
Sigma-Aldrich Corp. 4,000 235,000
Sonoco Products Co. 5,000 133,750
Terra Industries, Inc. 37,000 536,500
Texas Industries, Inc. 3,400 192,950
UCAR International, Inc. (b) 10,000 392,500
USG Corp. (b) 11,000 324,500
Vulcan Materials Co. 5,200 319,800
----------
11,245,380
----------
Technology 12.2%
Adaptec, Inc. (b) 10,000 597,500
America Online, Inc. (b) 15,000 416,250
Andrew Corp. (b) 12,500 607,812
Ascend Communications, Inc. (b) 10,000 656,094
Auspex Systems, Inc. (b) 18,200 184,275
Avnet, Inc. 5,000 252,500
BMC Software, Inc. (b) 10,000 837,500
Cadence Design Systems, Inc. (b) 33,000 1,204,500
Cascade Communications (b) 11,700 880,425
Ciber, Inc. (b) 2,900 102,225
Citrix Systems, Inc. (b) 5,000 278,750
Compuware Corp. (b) 15,000 791,250
Dell Computer Corp. (b) 7,000 567,875
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Technology (Continued)
Documentum, Inc. (b) 24,000 $ 888,000
DSP Communications, Inc. (b) 6,000 225,000
Dynatech Corp. (b) 16,500 820,875
Electroglas, Inc. (b) 15,000 200,625
Fiserv, Inc. (b) 8,000 302,000
FORE Systems, Inc. (b) 22,000 882,750
Gateway 2000, Inc. (b) 11,000 530,062
GenRad, Inc. (b) 14,000 278,250
Geotek Communications, Inc. (b) 20,000 147,500
Harris Corp. 13,000 814,125
Hyperion Software Corp. (b) 18,000 362,812
International Rectifier Corp. (b) 8,900 110,138
Legato Systems, Inc. (b) 9,000 313,875
McAfee Associates, Inc. (b) 9,000 409,500
Microchip Technology, Inc. (b) 10,000 363,750
Molex, Inc. 14,000 504,000
Network General Corp. (b) 8,000 193,000
Novellus Systems, Inc. (b) 5,500 225,500
PairGain Technologies, Inc. (b) 6,000 421,500
Paychex, Inc. 7,500 422,813
P-Com, Inc. (b) 5,000 111,250
Perkin-Elmer Corp. 16,000 864,000
PictureTel Corp. (b) 3,000 84,000
Rational Software Corp. (b) 6,000 227,250
Recoton Corp. (b) 9,000 122,625
Remedy Corp. (b) 16,000 764,000
Rohr Industries, Inc. (b) 10,000 182,500
SCI Systems, Inc. (b) 15,000 748,125
Shiva Corp. (b) 11,000 451,000
SMART Modular Technologies (b) 10,000 210,625
Storage Technology Corp. (b) 24,000 1,035,000
Sundstrand Corp. 7,000 283,500
Sunguard Data Systems, Inc. (b) 10,000 420,000
Systemsoft Corp. (b) 10,000 284,375
Teradyne, Inc. (b) 5,000 79,375
Unitrode Corp. (b) 19,000 451,250
Vantive Corp. (b) 6,000 199,500
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Technology (Continued)
Varian Associates, Inc. 10,500 $ 473,813
Vitesse Semiconductor Corp. (b) 5,000 157,500
Wyle Electronics, Inc. 19,000 567,625
Wyman-Gordan Co. (b) 5,000 110,000
Xircom, Inc. (b) 3,400 69,275
----------
23,689,619
----------
Transportation 1.5%
Alaska Air Group, Inc. (b) 5,000 108,125
Continental Airlines, Inc., Class B (b) 25,000 615,625
Illinois Central Corp. 18,000 585,000
Northwest Airlines, Inc., Class A (b) 12,000 382,500
Pittston Brink's Group 9,000 258,750
UAL Corp. (b) 8,000 371,000
USAir Group, Inc. (b) 20,200 348,450
USFreightways Corp. 11,000 242,688
----------
2,912,138
----------
Utilities 9.8%
360 Communications Co. (b) 50,000 1,143,750
AES Corp. (b) 29,000 1,268,750
Boston Edison Co. 46,100 1,106,400
C-TEC Corp. (b) 15,500 372,000
Calenergy, Inc. (b) 25,000 721,875
Centerior Energy Corp. 59,000 582,625
Central Hudson Gas & Electric Corp. 19,500 582,562
Century Telephone Enterprises, Inc. 26,000 841,750
Cincinnati Bell, Inc. 8,000 389,000
Citizens Utilities Co., Class A (b) 20,645 229,676
Commnet Cellular, Inc. (b) 30,000 840,000
Commonwealth Energy System Cos. 5,000 118,750
Delmarva Power & Light Co. 19,000 387,125
DQE, Inc. 22,000 638,000
Eastern Utilities Association 18,000 288,000
Idaho Power Co. 5,000 155,625
Kansas City Power & Light Co. 22,000 602,250
LCI International, Inc. (b) 11,000 354,750
Long Island Lighting Co. 46,900 855,925
MidAmerican Energy Co. 35,000 546,875
Montana Power Co. 15,000 320,625
New York State Electric & Gas Corp. 30,000 633,750
NIPSCO Industries, Inc. 24,000 909,000
Van Kampen American Capital Small Capitalization Fund
Portfolio of Investments (Continued)
October 31, 1996
- ----------------------------------------------------------------------
Market
Security Description Shares Value
- ----------------------------------------------------------------------
Utilities (Continued)
Oklahoma Gas & Electric Co. 16,500 $ 645,563
Portland General Corp. 27,000 1,184,625
Public Service Co. of Colorado 18,000 668,250
Public Service Co. of New Mexico 33,000 622,875
Southern New England Telecommunictions 19,200 715,200
United Illuminating Co. 6,400 212,000
VideoServer, Inc. (b) 10,000 461,250
Western Reserve, Inc. 20,000 605,000
----------
19,003,826
----------
Total Long Term Investments 95.6%
(Cost $152,735,835) (a) 185,675,096
Repurchase Agreement 4.8%
SBC Capital Markets, Inc. ($9,400,000 par collateralized by
U.S. Government obligations with a coupon rate of 7.25% and
a maturity date of 05/15/16 in a pooled cash account, dated
10/31/96, to be sold on 11/01/96 at $9,401,441) 9,400,000
Liabilities in Excess of Other Assets (0.4%) (867,504)
------------
Net Assets 100.0% $194,207,592
============
(a) At October 31, 1996, for federal income tax purposes, cost is
$152,847,091, the aggregate gross unrealized appreciation is
$37,938,915, and the aggregate gross unrealized depreciation is
$5,110,910, resulting in net unrealized appreciation of
$32,828,005.
(b) Non-income producing security as this stock currently does not
declare dividends.
<TABLE>
Van Kampen American Capital Small Capitalization Fund
Statement of Assets and Liabilities
October 31, 1996
<CAPTION>
ASSETS:
<S> <C>
Long-Term Investments, at Market Value (Cost $152,735,835) (Note 1) $ 185,675,096
Repurchase Agreement (Note 1) 9,400,000
Cash 1,928
Receivables:
Securities Sold 7,864,858
Dividends 249,830
Unamortized Organizational Expenses (Note 1) 26,856
Other 13,675
-------------
Total Assets 203,232,243
-------------
LIABILITIES:
Payables:
Fund Shares Repurchased 9,000,000
Distributor and Affiliates (Note 2) 4,850
Deferred Compensation and Retirement Plans (Note 2) 13,098
Accrued Expenses 6,703
-------------
Total Liabilities 9,024,651
-------------
NET ASSETS $ 194,207,592
=============
NET ASSETS CONSIST OF:
Capital (Note 3) $ 147,072,447
Net Unrealized Appreciation on Securities 32,939,261
Accumulated Net Realized Gain on Securities 11,780,941
Accumulated Undistributed Net Investment Income 2,414,943
-------------
NET ASSETS $ 194,207,592
=============
Net Asset Value, Offering Price and Redemption Price Per Share (Based
on net assets of $194,207,592 and 14,065,878 shares of beneficial
interest issued and outstanding) (Note 3) $ 13.81
=============
</TABLE>
<TABLE>
Van Kampen American Capital Small Capitalization Fund
Statement of Operations
For the Year Ended October 31, 1996
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends $ 2,758,370
Interest 270,834
-----------
Total Income 3,029,204
-----------
EXPENSES:
Accounting (Note 2) 90,363
Audit 26,045
Trustees' Fees and Expenses (Note 2) 18,564
Legal (Note 2) 17,809
Shareholder Services (Note 2) 14,823
Amortization of Organizational Expenses (Note 1) 12,395
Printing 9,794
Other 4,809
-----------
Total Expenses 194,602
Less Expenses Reimbursed (Note 2) 3,600
-----------
Net Expenses 191,002
-----------
NET INVESTMENT INCOME $ 2,838,202
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments $11,896,653
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period 19,691,003
End of the Period:
Investments 32,939,261
-----------
Net Unrealized Appreciation on Securities During the Period 13,248,258
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES $25,144,911
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS $27,983,113
===========
</TABLE>
<TABLE>
Van Kampen American Capital Small Capitalization Fund
Statement of Changes in Net Assets
For the Years Ended October 31, 1996 and 1995
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income $ 2,838,202 $ 1,931,971
Net Realized Gain on Securities 11,896,653 7,254,104
Net Unrealized Appreciation on Securities During the Period 13,248,258 19,737,220
----------------- ----------------
Change in Net Assets from Operations 27,983,113 28,923,295
----------------- ----------------
Distributions from:
Net Investment Income (2,187,156) (501,439)
Net Realized Gains on Securities (Note 1) (6,520,200) 0
----------------- ----------------
Total Distributions (8,707,356) (501,439)
----------------- ----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES 19,275,757 28,421,856
----------------- ----------------
FROM CAPITAL TRANSACTIONS (Note 3):
Proceeds from Shares Sold 91,004,000 200,761,987
Net Asset Value of Shares Issued Through Dividend Reinvestment 8,707,356 501,439
Cost of Shares Repurchased (125,124,342) (49,999,993)
----------------- ----------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS (25,412,986) 151,263,433
----------------- ----------------
TOTAL INCREASE/DECREASE IN NET ASSETS (6,137,229) 179,685,289
NET ASSETS:
Beginning of the Period 200,344,821 20,659,532
----------------- ----------------
End of the Period (Including undistributed net investment
income of $2,414,943 and $1,763,897, respectively) $ 194,207,592 $ 200,344,821
================= ================
</TABLE>
<TABLE>
Van Kampen American Capital Small Capitalization Fund
Financial Highlights
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
<CAPTION>
November 23, 1993
(Commencement
of Investment
Year Ended October 31, Operations) to
1996 1995 (a) October 31, 1994 (a)
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period $ 12.17 $ 9.82 $ 10.00
----------- ---------- ---------------
Net Investment Income 0.197 0.17 0.21
Net Realized and Unrealized Gain on Securities 1.968 2.26 (0.37)
----------- ---------- ---------------
Total from Investment Operations 2.165 2.43 (0.16)
----------- ---------- ---------------
Less:
Distributions from Net Investment Income 0.133 0.08 0.02
Distributions from Net Realized Gains on Securities (Note 1) 0.395 0.00 0.00
----------- ---------- ---------------
Total Distributions 0.528 0.08 0.02
----------- ---------- ---------------
Net Asset Value, End of the Period $ 13.807 $ 12.17 $ 9.82
=========== ========== ===============
Total Return 18.50% 25.00% 1.80%**
Net Assets at End of the Period (In millions) $ 194.2 $ 200.3 $ 20.7
Ratio of Expenses to Average Net Assets * 0.10% 0.08% 0.30%
Ratio of Net Investment Income to Average Net 1.45% 1.59% 1.99%
Portfolio Turnover 75% 85% 34%**
Average Commission Paid Per Equity Share Trade $ 0.0222 ---- ----
* The Ratios of Expenses to Average Net Assets and Net Investment Income to Average Net Assets were not
affected by the reimbursement of expenses by VKAC.
** Non-Annualized
(a) Based on average shares outstanding.
(b) Represents the average brokerage commission paid per equity share traded during the
period for trades where commissions were applicable. This disclosure was not required in fiscal
years prior to 1996.
</TABLE>
Van Kampen American Capital Small Capitalization Fund
Notes to Financial Statements
October 31, 1996
1. Significant Accounting Policies
The Van Kampen American Capital Small Capitalization Fund (the "Fund" )
is organized as a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to
approximate the performance of the small capitalization sector of the
equities market by investing primarily in common stocks of small
capitalization companies. The Fund commenced investment operations on
November 23, 1993.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
A. Security Valuation - Investments listed or traded on a national securities
exchange are stated at value using market quotations as of 2:00PM Eastern
Standard Time. Unlisted and listed securities for which the last sale price
at 2:00PM Eastern Standard Time is not available are valued at the last
reported bid price. Short-term securities with remaining maturities of 60
days or less are valued at amortized cost.
B. Security Transactions - Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specific price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other
investment companies advised by Van Kampen American Capital Asset Management,
Inc. (the "Adviser" ) or its affiliates, the daily aggregate of which
is invested in repurchase agreements. Repurchase agreements are
collateralized by the underlying debt security. The Fund will make payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of the custodian bank. The seller is required to
maintain the value of the underlying security at not less than the repurchase
proceeds due the Fund.
C. Investment Income - Dividend income is recorded on the ex-dividend date
and interest income is recorded on an accrual basis.
D. Organizational Expenses - The Fund will reimburse Van Kampen American
Capital Distributors, Inc. or its affiliates ("collectively VKAC" ) for
costs incurred in connection with the Fund's organization in the amount of
$62,000. These costs are being amortized on a straight line basis over the 60
month period ending October, 1998. The Adviser has agreed that in the event
any of the initial shares of the Fund originally purchased by VKAC are
redeemed during the amortization period, the Fund will be reimbursed for any
unamortized organizational expenses in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
E. Federal Income Taxes - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income and gains
to its shareholders. Therefore, no provision for federal income taxes is
required.
Net realized gains or losses may differ for financial and tax
reporting purposes as a result of the deferral of losses for tax purposes
resulting from wash sales.
F. Distribution of Income and Gains - The Fund declares and pays dividends
annually from net investment income and net realized gains on securities,
if any. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income
for tax purposes.
2. Investment Advisory Agreement and Other Transactions with Affiliates
The Adviser serves as the investment manager of the Fund, but receives no
compensation for its investment management services.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher &
Flom, counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the year ended October 31, 1996, the Fund recognized expenses of
approximately $90,400, representing VKAC's cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS" ), an affiliate of the
Adviser, serves as the shareholder servicing agent for the Fund. For the
year ended October 31, 1996, the Fund recognized expenses of
approximately $14,800, representing ACCESS' cost of providing transfer
agency and shareholder services plus a profit.
The Adviser has agreed to reimburse the Fund for certain trustees'
compensation in connection with the July, 1995 increase in the number of
trustees of the Fund. This reimbursement is expected to continue through
December 31, 1996.
Certain officers and trustees of the Fund are also officers and
directors of VKAC. The Fund does not compensate its officers or trustees
who are officers of VKAC.
The Fund has implemented deferred compensation and retirement plans
for its trustees. Under the deferred compensation plan, trustees may
elect to defer all or a portion of their compensation to a later date.
The retirement plan covers those trustees who are not officers of VKAC.
At October 31, 1996, the Fund was owned by two investment companies
advised by the Adviser; Van Kampen American Capital Common Sense Trust
Growth Fund and Van Kampen American Capital Pace Fund owned 53.4% and
46.6% of the Fund, respectively.
3. Capital Transactions
The Fund is authorized to issue an unlimited number of shares of
beneficial interest with a par value of $.01 per share. Fund shares
are only available for purchase by Funds for which VKAC serves as
investment adviser.
At October 31, 1996 and 1995, capital aggregated $147,072,447 and
$172,485,433, respectively. Transactions in common shares were as
follows:
Year Ended Year Ended
October 31, October 31,
1996 1995
----------- -----------
Beginning Shares 16,467,558 2,104,130
----------- -----------
Shares Sold 6,965,729 18,994,170
Shares Issued Through
Dividend Reinvestment 731,096 54,151
Shares Redeemed (10,098,505) (4,684,893)
----------- -----------
Net Increase/Decrease
in Shares Outstanding (2,401,680) 14,363,428
----------- -----------
Ending Shares 14,065,878 16,467,558
=========== ===========
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of
investments, excluding short-term investments, were $143,072,474
and $176,906,152, respectively.
Price Waterhouse LLP
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Shareholders and Board of Trustees of
Van Kampen American Capital
Small Capitalization Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Van Kampen American Capital Small Capitalization Fund (the "Fund") at
October 31, 1996 and the results of its operations, the changes in
its net assets and the financial highlights for the periods presented,
in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at October 31, 1996 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Houston, Texas
December 9, 1995
Van Kampen American Capital
Small Capitalization Fund
- ------------------------------------------------------------------------
Board of Trustees
J. Miles Branagan
Linda Hutton Heagy
Roger Hilsman
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Co-Chairman
Jack E. Nelson
Jerome L. Robinson
Fernando Sisto - Co-Chairman
Wayne W. Whalen*
William S. Woodside
Officers
Dennis J. McDonnell*
President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen American Capital
Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank and Trust Company
225 Franklin Street
P.O. Box 1713 Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
Price Waterhouse LLP
1201 Louisiana Houston, Texas 77002
* "Interested" persons of the Fund as defined in the Investment Company
Act of 1940
A Special Meeting of Shareholders of the Trust was held on October 25, 1996,
where shareholders voted on a new investment advisory agreement, the
ratification of independent accountants and changes to investment policies.
With regard to these items, all shares voted for the proposals, with none
against and none abstained.
